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The Supreme Court clarified the duties of public company directors in a release Friday that detailed its reasons for dismissing a lawsuit by bondholders seeking to derail the ill-fated $35-billion takeover of BCE Inc.

The decision found that BCE's board had acted fairly when it approved a takeover deal from a private equity group led by Ontario Teachers' Pension Plan. Three different classes of debenture holders had unsuccessfully challenged the now terminated takeover on the grounds that its heavy debt loads unfairly punished bondholders.

The court argued in its reasons that the bondholders' rights were limited to the legal contracts negotiated when the BCE bonds were issued and sold. These contracts did not include a provision that prohibited takeovers.

“The [takeover] arrangement does not fundamentally alter the debentureholders' rights. The investment and the return contracted for remain intact. Fluctuation in the trading value of debentures with alteration in debt load is a well-known commercial phenomenon. The debentureholders had not contracted against this contingency. The fact that the trading value of the debentures stood to diminish as a result of the arrangement involving new debt was a foreseeable risk, not an exceptional circumstance,” the court said.

“It was clear to the judge that the continuance of the corporation required acceptance of an arrangement that would entail increased debt and debt guarantees by Bell Canada: necessity was established. No superior arrangement had been put forward, and BCE had been assisted throughout by expert legal and financial advisers, suggesting that the proposed arrangement had a valid business purpose.”

Although the reasons will be welcomed by legal experts and directors of public companies as a clarification of directors' duties, particularly during takeover transactions, it is something of an anti-climax for BCE investors. BCE share values were decimated last month when the Montreal communications company failed to meet a solvency condition of the buyout and the takeover collapsed.

Ontario Teachers' Pension Plan and its private equity buyers were forced to delay their 2007 agreement to buy BCE after three classes of bond holders sued the company for approving a deal that came with a $32-billion debt burden. Then the world's largest leveraged buyout, the BCE takeover agreement translated into sharply lower credit ratings and market values for the company's bondholders.

The bondholders lawsuit lead to two conflicting lower court decisions in Quebec, leaving the fate of the monster buyout in the hands of Supreme Court Justices with limited experience in urgent and complex business cases.

At the heart of the bondholders case against BCE was the claim that the company's executives had raised expectations through public statements that it was committed to protecting the high debt ratings of the company's bonds. The investors lawyers argued that BCE reneged on its promise to protect its bonds' blue-chip credit ratings when the company's board agreed to the debt-heavy takeover by Ontario Teachers and its partners.

For dozens of lawyers who advised and litigated one of the largest business cases to go to the Supreme Court, Friday's decision brings the legal roller coaster within reach of the finish line. Still unresolved is a lawsuit launched by BCE this week against the Ontario Teachers' buying group to seek a $1.2-billion break fee following the deal's collapse Dec. 11.

The first Quebec court to hear the bondholders' case approved the takeover as fair. But a panel of five judges on the Quebec Court of Appeal stunned investors and put the deal in jeopardy when it overturned the decision on the grounds that the process applied by BCE's board to sell the company was “flawed” because it failed to properly consider its bondholders' interests.